Question of the Day

Whose side of the story do you believe?

The government’s explosive borrowing has hit a turning point: It’s expected to drop 18 percent this year after setting a record high last year. The brighter picture is due to higher tax revenue and less government spending as the economy has improved.

Yet the Obama administration still expects this year’s deficit to set another high: $1.56 trillion. Even if, as expected, that number is trimmed a bit when the administration releases a revised estimate this summer, the new figure is not likely to drop below $1.4 trillion - which would match last year’s all-time record.

Still, the improving economy is boosting revenues and lowering emergency spending in such areas as stabilizing the financial system and jump-starting economic growth. Those gains have led Treasury to trim its estimated borrowing needs for this budget year to $1.459 trillion, down by 18.3 percent from last year’s record $1.786 trillion in borrowing.

Because of that drop, the Treasury Department announced Wednesday that it was trimming its borrowing amount at its regular quarterly auction to $78 billion in a series of three debt auctions next week, down from a record $81 billion at the last quarterly action in February.

It marked the first decrease in the amount the government planned to borrow at a quarterly auction since May 2007, and many economists saw it as a watershed event, indicating that the high point for Treasury’s debt demands had passed.

“The government still needs boatloads of money, but at least borrowing has peaked,” said Mark Zandi, chief economist at Moody’s Analytics. “The better economy is helping to slow the growth in spending, and the improvement in the financial system means that banks are now paying back the money they received last year.”

The improvement does not mean the country is out of the woods in terms of its own debt problems, however.

The deficit soared to $1.4 trillion last year; private analysts believe it will be around that level this year, and the administration is forecasting that the deficit for 2011 will decline only slightly, to $1.227 trillion next year.

In fact, the administration does not see the federal budget deficit falling lower than $706 billion for any year over the next decade, meaning the government will pile up an additional $8.5 trillion in debt over that period that will have to be financed.

President Obama has appointed a deficit commission that is due to report by the end of this year on what extra steps will be needed in spending cuts or higher taxes or a combination of the two to get future deficits under control.

The administration has stressed that it understands the need to get future deficits under control and is committed to bringing the deficit as a percentage of the overall economy down to what it considers a sustainable level of 3 percent over the next five years. That would be down from a deficit of 10 percent of GDP this year.

So far, the government has been able to pay low interest rates on the massive amounts of borrowing it has done because foreign investors still see U.S. Treasury securities as a safe haven in times of turmoil.

The deep global recession also has meant less competition for loans by businesses and consumers, which also has helped keep rates low, as have the efforts of the Federal Reserve to push rates to record lows to stimulate economic growth.

“All the factors that have helped to keep U.S. rates low, from the bad economy to a global flight to quality will start to reverse over the next year,” Mr. Zandi said. “When they do, if we haven’t appreciably changed our fiscal outlook by then, investors will begin to grow nervous and start demanding dramatically higher interest rates to hold our debt.”

Mr. Zandi and other economists are hoping the recommendations from Mr. Obama’s deficit commission will spark action in Congress to develop a credible long-range plan to deal with the deficit problem.